30 May 2014 by HCM

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The financial sector was where the action took place today, even though at the end of the day only one name really moved. First Moody’s revised the outlook to negative on a number of European banks following the adoption of the BRRD, as they assess its implications for government support. That gave financial names across the board that light shade of red, while the rest of market was moving sideways and even a tad tighter for choice. But the real shocker was the size of the fine the US administration is trying to impose on BNP (BNP Paribas SA) according to an overnight WSJ article: $10bln, which is equivalent to 100bps of their capital ratio (it currently stands at 10.6%). Investors' confidence was shaken and the 5 year risk premium increased substantially. If bonds eventually settled and closed only marginally down as bargain hunters showed up, 5 year CDS was left bid and closed 6bps wider at 70.5bps.